Experts agree: Sustained Japanese Yen weakness is likely to trigger another intervention
- USD/JPY consolidates gains near 157.50, with bulls looking at key resistance above 158.00.
- The Fed's hawkish hike and a somewhat more dovish BoJ have reversed the Yen's bullish trend.
- Bank analysts anticipate a Tokyo intervention if the JPY keeps trending lower.
The Japanese Yen (JPY) maintains its near-term bearish trend against the US Dollar (USD) on Tuesday. The USD/JPY pair is trading in the mid-157.00s at the time of writing, with bulls aiming for a previous support area just above 158.00 and the key 200-day Simple Moving Average (SMA) at 157.45.
The Federal Reserve’s (Fed) hawkish turn has offset the impulse of the Bank of Japan’s (BoJ) monetary tightening plans. Beyond that, the two dovish dissenters at the BoJ meeting have cast some doubt about the scope of the bank's tightening cycle. All in all, the Yen has lost the shine of previous weeks, which is prompting Japanese authorities to set the stage for an intervention if the JPY weakens further
Yen rebound highlights Japan’s two-pronged defence of USD/JPY
Analysts at MUFG note that "the BoJ had conducted a rate check during the New York trading session,” sending “a clear signal that they are prepared to intervene again if the yen continues to weaken.” MUFG warns that this move came “ahead of the 3-day holiday period where liquidity for USD/JPY is likely to be lower.”
According to Societe Generale, the spot rate checks by the MoF late on Friday "underlined the two-pronged policy approach in Japan where intervention is obfuscating the price action and wrong-footing tactical investors.”
Regarding the intervention trigger, strategists at ING observe that the reported Bank of Japan rate check on Friday "may suggest that Japanese authorities are focused more on the pace of moves over a rolling x-day period than on defending a specific level.”
"The hope is that this approach avoids creating a clear line in the sand for markets to target and helps keep positioning cautious,” says Ing in a note, also observing that “the Fed has sounded distinctly more hawkish than the Bank of Japan this month, leaving room for further USD/JPY gains.”
Looking ahead, Commerzbank’s Thu Lan Nguyen warns that “over the longer run, however, merely threatening intervention is unlikely to be enough.” “Sooner or later, the BoJ will have to back up its words with action” if it wants to restore confidence in its commitment to tighter policy and more durable Yen stability, says Nguyen.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
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